Oil declined below $88 on fears of a U.S. recession despite a move by the U.S. Federal Reserve yesterday to cut interest rates.

Investors speculated that the three-quarter of a point cut to 3.5 percent will not prevent the economy from avoiding negative growth in the largest consumer of oil, which could lead to lower crude demand. The United States is responsible for one quarter of world's oil consumption.

U.S. crude fell $1.97, or 2.21 percent to $87.24 a barrel on the New York Mercantile Exchange at 12:24 p.m. Oil dropped as low as $86.11 earlier today.

Brent Crude fell $1.98, or 2.24 percent to $86.52 a barrel on London's ICE Futures Exchange.

Global stock markets' slump on Monday and Tuesday added to worries about the economic outlook. Asia and Europe stock markets saw some of their worst losses this week since the attacks of September 11, 2001.

Oil has fallen after reaching a record of over $100 a barrel on January 3. Despite losses so far this year, current oil prices are still more than 60 percent higher than they were a year ago.

The U.S. Energy Department will report on crude oil and gasoline inventories tomorrow at 10:30 a.m. in Washington. Analysts forecast the data will show supplies rose for a second week.